Push for greater compliance with Internet sales tax killed Wednesday

Sen. Patti Anne Lodge said the bill is a step forward, but worried about the quick turnaround.

Members of the House Revenue and Taxation Committee killed a measure Wednesday aimed at encouraging Idahoans to pay their share of sales taxes on purchases made over the Internet.

The measure, sponsored by Rep. Julie Ellsworth, R-Boise, would have made several changes to income tax forms, including putting bold wording around theuse tax box, which is used to report taxes on all out-of-state purchases. The bill would have also ordered the Idaho State Tax Commission to put a table on income tax forms projecting Internet sales taxes due based on income levels.

Idahoans are legally obligated to pay sales taxes on Internet purchases, but many don’t because they don’t know about the law or simply choose to skip reporting at income tax time. There are no mechanisms for accurately gauging how much Idahoans should pay. That means that citizens must be on the honor system in reporting the tax.

The self-reporting system, Ellsworth explained, has led Idaho losing out on millions of dollars in tax revenue annually. “There’s a lack of compliance with the use tax,” said Ellsworth. “We want to find a way that you get more compliance. There’s a general lack of understanding what the use tax is.”

It’s estimated that Idaho could bring in upward of $30 million annually by collecting taxes on Internet purchases. Ellsworth said the average Idaho consumer should be paying about $69 for online purchases to the state each year.

Another change included allowing the tax commission to reject or delay all income tax forms that don't have an entry in the use tax box. That provision drew the ire of the Ken McClure, representing the Idaho Society of Certified Public Accountants, who said that only 8,000 of the approximately 600,000 income tax forms filed each year have entries for payment of use tax.

With such a high number not in compliance, McClure pointed out, it would be difficult for the commission to handle the workload. “You might create pandemonium at the tax commission,” said McClure. “I think you’re not going to like the results.”

Many committee members felt that the bill would cause confusion for citizens and more work for the commission. Rep. Dell Raybould, R-Rexburg, said the measure could force more Idahoans to go through costly audits. “It looks like we are creating a hobgoblin here for the tax commission,” said Raybould. “It looks to me like this is creating something that taxpayers don’t need to go through.”

But not all panel members opposed the measure. Rep. Scott Bedke, R-Oakley, said the bill would help close tax shortfalls in the future and could even mean some tax relief. “Maybe we could lower everybody’s taxes,” said Bedke.

Rep. Grant Burgoyne, D-Boise, said that a tax system should promote fairness and that the current system does not achieve that. “The way things are now is unfair to the taxpayers who already pay the tax,” said Burgoyne. “The system depends on voluntary compliance. If we don’t have voluntary compliance, the system falls apart.”

This is the second effort to move toward collection of Internet sales taxes killed this year. Rep. Leon Smith, R-Twin Falls, brought a bill to help Idaho enter into a national consortium dedicated to developing tax policy to allow collection of the tax, but it never received a full committee hearing.

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The sponsor of the bill says Idaho loses out on $30 million annually, The sponsor of the bill says Idaho loses out on $30 million annually